Looking for alpha in the weather: Warming to climate change as an investor in Australia TBLI Asia – Bangkok, 30 May 2008 Nick Edgerton, Research Analyst, Sustainable Alpha Team

Outline The implications of direct impacts of climate change for investors in Australia The societal response to climate change that investors in Australia must consider Understanding the winners and losers

The implications of direct impacts of climate change for investors in Australia

The societal response to climate change that investors in Australia must consider

Understanding the winners and losers

Sudden impacts: What’s in the weather for investors?

Sudden change: Weather events Source: BOM (2008)

Climate change and realising risk Source: IAG (2007)

Sudden change: Investment impact Sydney Storms Sydney storm losses announced Newcastle storm losses announced Newcastle Storms Announced that previous yr storms cost $125 mill

Sudden change: Investment impact Source: BOM (2008) Floods and mining

Sudden change: Investment impact Source: BOM (2006) Cyclones and agriculture

Climate change responses: playing on a shifting field

Australian Emissions Trading Scheme Cap and trade scheme commencing 2010 The scheme includes approx 420 MT CO2-e (10% emissions abatement) Permit Price likely to be $25-30/tonne CO2-e permit market $10.5 - 12.5bn p.a. Permit allocation may lead to significant wealth transfer and impact company valuations and investor returns, about 3.2% ASX200 EBITDA. Key questions: What is the ability to pass on carbon costs? What happens in the electricity sector?

Cap and trade scheme commencing 2010

The scheme includes approx 420 MT CO2-e (10% emissions abatement)

Permit Price likely to be $25-30/tonne CO2-e

permit market $10.5 - 12.5bn p.a.

Permit allocation may lead to significant wealth transfer and impact company valuations and investor returns, about 3.2% ASX200 EBITDA.

Key questions:

What is the ability to pass on carbon costs?

What happens in the electricity sector?

Picking the winners and losers

Winner & Losers Source: IGCC 2007

Winner & Losers Impact on airlines and ability to pass through costs Forestry operators and impact of different carbon rules in ETS

Impact on airlines and ability to pass through costs

Forestry operators and impact of different carbon rules in ETS

Ongoing opportunity Climate issues most important for managing corporate reputations and brand – with 68% of >2,000 execs* Growth in carbon offset and consumer trends Govt policy and voter values Expectations on the role of business; ETS; Renewables policy; and policy towards adaptation Knowledge and IP Innovation and design Opportunity along the supply chain Low emission-intensity products * McKinsey 2008

Climate issues most important for managing corporate reputations and brand – with 68% of >2,000 execs*

Growth in carbon offset and consumer trends

Govt policy and voter values

Expectations on the role of business; ETS; Renewables policy; and policy towards adaptation

Knowledge and IP

Innovation and design

Opportunity along the supply chain

Low emission-intensity products

Winner & Losers: How Prepared are Australian Companies? 97% Recognise climate change as a commercial risk 93% Senior Mgt or Board responsibility for climate change issues 89% Recognise climate change as a commercial opportunity 77% Have considered ETS opportunities 60% Disclose sufficient GHG emissions data 36% Have established GHG emission reduction programs with targets 33% Emissions intensive companies did not disclose possible risks and opportunities or management and mitigation strategies Source: 2007 CDP Report

97% Recognise climate change as a commercial risk

93% Senior Mgt or Board responsibility for climate change issues

89% Recognise climate change as a commercial opportunity

77% Have considered ETS opportunities

60% Disclose sufficient GHG emissions data

36% Have established GHG emission reduction programs with targets

33% Emissions intensive companies did not disclose possible risks and opportunities or management and mitigation strategies

Summary and recap

Summary Climate change is having a material impact on investments and is likely to increase with time Climate risk can and should be integrated into investment decisions along with all other risks Understanding the winners and losers requires digging deeper into the direct impacts, and responses, to climate change

Climate change is having a material impact on investments and is likely to increase with time

Climate risk can and should be integrated into investment decisions along with all other risks

Understanding the winners and losers requires digging deeper into the direct impacts, and responses, to climate change

Climate and Sustainable Credentials The Sustainable Alpha Team’s activities are carbon neutral for energy and transport with the help of Climate Friendly The Australian Sustainable Future product received an inaugural SRI symbol certification AMP Capital is a founding member of Investor Group on Climate Change AMP Capital is a signatory to the Principles for Responsible Investment AMP Capital is a signatory to the Carbon Disclosure Project

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